As companies in the energy sector grapple with increasing regulatory demands, environmental concerns, and financial uncertainty, the need for directors and officers (D&O) liability insurance has never been more pressing.
Executives in this industry widely agree that they must make high-stakes decisions while facing potential legal actions from regulators, shareholders, and other stakeholders.
These challenges place significant pressure on corporate leadership, requiring a strong risk management strategy. Without adequate D&O coverage, directors and officers could be held personally liable for decisions made in their professional roles, potentially leading to financial and reputational damage.
Trevor Gilstrap, national energy practice leader at AssuredPartners, explained why energy companies face unique risks that make D&O coverage essential.
“Given such a daunting landscape, the role of corporate leadership becomes crucial – and with it, the need for directors and officers (D&O) liability insurance,” Gilstrap said.
“Energy companies, particularly those involved in oil, gas, and coal, are the most pressured by environmental activists and regulatory bodies,” he said. “Directors and officers often face personal liability over decisions related to the environment. Without D&O coverage, these individuals may be exposed to costly litigation over environmental missteps.”
Energy companies operate in a highly regulated space, with state and federal agencies enforcing compliance requirements. Regulatory actions, including fines, sanctions, and lawsuits, have become a routine part of the landscape.
“If allegations were to be levelled against directors and officers for not maintaining required regulatory practices, serious possible legal ramifications could exist,” Gilstrap said.
Commodity price volatility adds another layer of risk.
“Sharp fluctuations in the price of oil, gas, and other commodities may cause financial instability that could result in shareholder litigation,” Gilstrap said. “Directors and officers also risk liability for poor financial performance, failed mergers, or capital allocation decisions made during unstable market conditions.”
Mergers and acquisitions (M&A) are also a frequent occurrence in the energy sector, but they also bring legal risks. Failed deals or acquisitions that do not meet expectations often result in shareholder disputes.
“When an acquisition has gone sour or failed to deliver the expected value, boards might face litigation by shareholders and stakeholders who feel misguided or that due diligence wasn't proper,” Gilstrap said.
Gilstrap said that proper coverage from the right insurance brokers can help sidestep these risks as they become more prevalent. He noted the AssuredPartners’ Energy Edge program, which is designed specifically for the energy sector.
“Standard D&O policies often fail to adequately address key energy company exposures. Energy Edge can help fill the gaps with targeted coverage, broader definitions, faster claims response, and cost efficiency,” he said.
“The protection of your leadership team is critical to your company's future. Lawsuits targeting directors and officers can lead to financial ruin and damage a company's reputation,” Gilstrap said.
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